Doctrine of Alter Ego and Attribution

The basic tenet of the corporation law is that the corporation is a separate legal personality apart from its owner and managing directors. One of the Advantages of such tenet is that it provides shareholders, directors and other officers of the corporation with limited liability protecting them from the obligations and acts of the corporations.

This advantage has certainly resulted into a disadvantage to the creditors and others who have certain interest in it as one can use a corporation as a “mere shell” in an attempt to further his own business rather than the business of the corporation and to avoid his personal liability.

Piercing The Corporate Veil And Doctrine Of Alter Ego-

If the owner, managing directors, or the shareholders use the corporation as an instrumentality to do their own personal business or to achieve any wrongful gain they may be held personally responsible for the acts done under the shield of corporate veil by applying the doctrine of alter ego.

Individual who has formed a corporation is a part of the personality of the corporation and such separate personality of the individual cannot be seen without lifting the corporate veil.

Doctrine of Alter Ego-

The term alter ego can be described as the part of someone’s personality that is usually not seen by the others. This doctrine was further explained in the case of International Aircraft Trading Co. v Manufacturers Trust Co. as

“When a corporation has been so dominated by an individual or another corporation and its separate entity so ignored that it primarily transacts the dominator's business instead of its own it will be called the individual’s alter ego. Since the business owner and the corporation are alter egos, they are merely two sides of the same coin.”

Owners and the persons who manage the affairs of the company are considered as the alter ego of the company because there is such a unity of interest in the ownership that the separate personality of the company and the owner or shareholder does not exists. A company is deemed to be one and the same as the owner of the company and vis a vis.

Inception And Evolution of This Doctrine

The concept of alter ego is a common law principle and has further developed by the judicial pronouncements.

“A corporation is a separate legal entity distinct from its members. It acts through living persons and the persons who acts for the company are not acting as an agent or a servant but are acting as an alter ego as they are an embodiment of the company and their mind is the mind of the company. If it is a guilty mind then the guilt is the guilt of the company.” as observed in the case of Tesco Supermarket Ltd. V. Nattrass

However there is uncertainty regarding the application of this doctrine. Where a business entity and its controlling owner are alter egos, under the reverse-piercing doctrine the piercing flows in the opposite direction and makes the corporation liable for the debt of the owner.

Liability Under of Directors Under Alter Ego Doctrine-

Directors and other persons who have control over the management of affairs of the company can be held liable for the acts committed by or on the behalf of the company under the doctrine of alter ego Since the corporation has no mind of its own any more than a body of its own; its active and directing will must consequently be sought in the person who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation. But it was also relied that the principle of alter ego has always been applied in reverse, so the acts of the individuals, who is in the control of the affairs of the company are attributed to the company not vice versa.

Current Status of It In India

In India, the position regarding the criminal liability of company was made clear in the case of Standard Chartered Bank and Others V. Directorate of Enforcement and Others wherein it was observed that

“A company is liable to be prosecuted for the criminal offence although act may be committed through its agent.”

Further in the case of Iridium India Telecom Ltd. V Motorola Incorporation And Others, while applying the doctrine of attribution and imputation it was observed that

“The group of the persons guiding and controlling affairs of the company or corporation regarded as alter ego of the company. The criminal intent of the alter ego of the corporation i.e. the person or group of the persons that guide the business of the company would be imputed to the corporation.”

In the case of Sunil Bharti Mittal V CBI and others, the court through special judge while applying this doctrine observed that the managing directors and directors can be considered alter ego of the companies and the acts of the companies are to be attributed and imputed to them. The Special Judge held that in light of the capacity in which these directors acted, they can be considered as the persons controlling the affairs of the company and the directing mind and will of the respective companies.

Later this order was challenged before the apex court. Apex court while rejecting the order pronounced by the special judge observed that this order would run contrary to the principle of vicarious liability detailing the circumstances under which a direction of a company can be held liable. The special judge applied the doctrine in the reverse direction but the apex court observed that the principle of alter ego can only be applied in one direction that is to make the company liable for an act committed by a person or group of persons who control the affairs of the company as they represent the alter ego of the company; however it cannot be applied in reverse direction to make the directors of the company vicariously liable for an offence committed by the company in the absence of statutory provisions.

Analysis Owners of the limited liability company may structure their business in a manner similar to a corporation so that members and mangers are shielded from personal liability for the debts or criminal liabilities of the company. It is difficult to ascertain the personality of an individual from that of corporation as an individual is considered as an alter ego of the corporation. Thus certain compelling circumstances and material on record must exists before the court for invoking the doctrine of alter ego. Further this doctrine is required to be incorporated as a statutory provision for regulating the behavior of the corporation.

The interplay of the economic and technological concerns in the process of globalization, and the proliferation of low cost wars, through terror groups and also religious and ethnic conflicts, in and around the borders further enlarged the scope of what are called the global security concerns which qualitatively affected the conventional national security ethos....